No Taper

Last week, the US central bank decided to wait for better times and left unchanged the highly accommodative monetary policy stance. Thus, it will continue purchasing mortgage backed and long term Treasury securities and keeping interest rates close to zero.

The reasons offered to refrain from adjusting the pace of the asset purchase program were basically that the Open Market Committee wants to see more evidence of sustained economic strength. This year, economic growth in the first semester was under 2 percent and the expected improvement in the second half has not happened. The Committee also recognized that the persistence of low inflation, below the 2 percent objective, poses a risk to economic performance. Additionally, it took into account what it called the extent of federal fiscal retrenchment over the past year, to conclude that fiscal policy is restraining economic growth.

The Committee also spelled out the awaited signals required to change the highly accommodative monetary policy stance. To moderate the pace of asset purchases, the Committee wants to see substantial improvement in the labor market, in a context of price stability. Furthermore, exceptionally low interest rates, near zero, are judged appropriate, as long as the unemployment rate remains above 6.5 percent, still far from last September’s 7.2 percent. In other terms, at current performance rates, the highly accommodative stance will remain appropriate for a considerable time.